Offers to Compromise Taxes
Many of us can’t pay our taxes. It’s not that we don’t want to, but the taxes can be several years old and the IRS has needlessly added huge penalties and interest. What started out as a financial hardship has become an insurmountable burden. People become fearful, can’t sleep, suffer depression, their marriages suffer and divorces may occur, and their businesses are at risk. All of this is a common occurrence when the IRS is knocking on your door.
One of the most important programs of the federal tax law was called the Offer in Compromise program. Simply put, the IRS had to consider accepting a smaller payment in satisfaction of a tax liability which can’t be paid in full.
This was one of the IRS’s least favorite tax laws. Congress telling the IRS to cease filing liens, seizing homes and other property, threatening businesses and the like was not well received. Telling them to also exercise sound business judgment to compromise that tax liability, well, that’s just too much to ask. After all, IRS collection agents often see taxpayers who owe taxes as dishonest. To say the IRS has been reluctant to compromise would be a gross understatement. For years the IRS abused this statute and it continues to do so.
Recognizing the IRS bias against these compromises, Congress held public hearings on the problem. Several new laws were passed to force the IRS to allow more compromises. Congress even publicly directed the IRS to adopt a more liberal acceptance policy. The statute became widely known and many people applied for relief.
I recently had a low-level employee tell me that my client was not entitled to relief because he did not have a serious heart condition which his medical records showed. Perhaps she knew better than his doctor. Anyway, a trained representative knows how to deal with these bureaucrats.
In response, the IRS established procedures which are slow (it can take over 2 years), time-consuming, and often very difficult to satisfy. The amount of information the IRS wants is incredible and the analysis can be vague and inconsistent. For the most part, the compromise employees are poorly trained and uncooperative.
However, this has not kept businesses from advertising on billboards that they successfully negotiated huge discounts in tax liabilities. Billboards, 800 telephone numbers, former IRS agents out of work, etc. Promises, promises, promises. All of this is bogus misrepresentation. Some of these businesses have been criminally prosecuted, others shut down by state Attorney Generals or class action lawsuits. These are unsuccessful puppy mills selling expensive paperwork with gross misrepresentations. The IRS hates them as well.
Today I am frequently asked if we have “a kinder and gentler IRS.” I must respond with an unequivocal NO! The IRS still has the same agents making daily decisions about our lives. Their attitude and perceptions are the same. They just have more taxpayer rights to overcome, and, for many, they just don’t like this program.
Folks, the truth is Congress got it right. There is a great need for this program as it may help people who are hopelessly insolvent or experiencing extreme hardship. The problem has been in the implementation of the program- by onerous rules and inconsistent punitive IRS agents.
Today the offer in compromise program has been diminished by more successful programs. However, it is still around and in the right circumstances it still has vitality- but only if your representative knows what he or she is doing. It must be considered along with a host of other programs.
Kinder and gentler IRS? I don’t think so. Don’t think for a minute a compromise is easy to get or the IRS is exercising reasonable discretion. Once a bill collector, always a bill collector.